2023/01/31 by Andrea Canidio, Canidio, Andrea
Business, Management and Accounting · Computer Science · Decision Sciences · #Auction Theory and Applications #Blockchain Technology Applications and Security #Distributed #FOS: Computer and information sciences #FOS: Economics and business #FinTech, Crowdfunding, Digital Finance #Parallel #Theoretical Economics (econ.TH) #and Cluster Computing (cs.DC)
paper · pdf · doi:10.48550/arxiv.2301.13794
openalex publication_date 2023/01/31 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/30
I study a repeated auction in which payments are made with a blockchain token created and initially owned by the auction designer. Unlike the ``virtual money'' previously examined in mechanism design, such tokens can be saved and traded outside the mechanism. I show that the present-discounted value of expected revenues equals that of a conventional dollar auction, but revenues accrue earlier and are less volatile. The optimal monetary policy burns the tokens used for payment, a practice common in blockchain-based protocols. I also show that the same outcome can be reproduced in a dollar auction if the auctioneer issues a suitable dollar-denominated security. This equivalence breaks down with moral hazard and contracting frictions: with severe contracting frictions the token auction dominates, whereas with mild contracting frictions the dollar auction combined with a dollar-denominated financial instrument is preferred.